Pacific Hydro: power play of boutique scale

Renewable energy producer Pacific Hydro will rely on targeted, localised marketing of a tailor-made green power package in a bid to win customers for its new retailing business away from majors such as
AGL Energy
and
Origin Energy
.

Unable to compete directly on price, Pacific Hydro still expects to gain contracts with large commercial customers, local governments and government utilities keen to lock in environmentally friendly power supply, possibly from a project in their own neighbourhood.

“We’re looking at more of those boutique offerings where people are preparing to take on a pure green offer," said Andrew Richards, Pacific Hydro executive manager of government affairs.

“Yes, it would be more expensive but we have certainly identified segments and individual customers who are prepared to pay that extra."

Pacific Hydro, which under its existing wholesale agreements has only been able to sell green power offsets directly to customers rather than the power itself, is targeting a share of about 2 per cent of the electricity market. The move into retailing by Pacific Hydro, owned by $33 billion pension fund manager Industry Funds Management, follows a similar expansion by fellow wind power producer
Infigen Energy
in 2010.

It reflects a wider trend by independent power producers to directly compete with retailers for customers after a stand-off between the two over power purchase agreements that has stalled the development of new renewable energy projects.

“As it’s evolving it is becoming more apparent that as an independent power producer to forward integrate is something that we need to do to have that extra opportunity to build projects," Mr Richards said.

Winning two or three solid foundation customers would probably be enough to commit to building a new project, without having to rely on a power purchase agreement with a retailer, he added.

Related Quotes

Company Profile

Pacific Hydro has about 550 megawatts of wind farm projects in its development pipeline, as well as its proposed large-scale solar power project at Moree in NSW with Spain’s Fotowatio Renewable Ventures, and an early-stage geothermal venture with GreenRock Energy.

The board of Pacific Hydro approved the entry into retailing six months ago.

But the move was accelerated so the company could act as the offtaker for the 150-megawatt Moree solar venture after negotiations broke down in December with the original planned customer, Origin Energy.

The power purchase agreement for the Moree project is a critical part of the venture’s renewed application for funds from the federal government’s $1.5 billion Solar Flagships program.

In its revised assessment process for Solar Flagships funds, the government is understood to be paying close attention to the robustness of the PPA and Mr Richards said he hoped Pacific Hydro’s lack of track record in retailing wouldn’t count against the Moree proposal.

Retail giants AGL Energy and TRUenergy, as well as
Infigen
, are involved in rival projects competing for the same funding.

“We think we’ve got the best project out there but at the end of the day the government will make its own decision so we are hostage to that process," Mr Richards said.

Should the Moree project go ahead, Pacific Hydro may look to sell output from the plant to businesses and government authorities in the New England region, capitalising on the local connection with customers.

“It appears to us there’s a reasonable amount of demand there for this type of offering we’re planning to put into the marketplace," he said.

Pacific Hydro is the first company to apply for a national retailing licence in the revamped process under the Australian Energy Regulator and expects to secure the permit by July, allowing it to launch its retail offering in the second half.

It will start by offering electricity and green offsets produced from the uncontracted part of its existing 300 megawatts of producing wind and hydropower capacity in Australia.